MiCA Webinar 2 – Crypto-assets caught by TradFi regulation in the EU – 22 February 2024

Summary

This webinar, presented by XR's Ernest Lima and Anna James, delves into ESMA's new guidelines on classifying crypto assets as financial instruments, addressing a long-standing area of uncertainty within the EU. It outlines the aim to aid market participants and regulators in assessment processes, discussing the implications of MICA and MiFID on crypto assets. The webinar covers various asset types, including transferable securities, derivatives, and hybrid tokens, highlighting the need for a nuanced approach in classification. Key challenges, such as regulatory inconsistencies and the potential for harmonization, are examined, emphasizing the importance of industry feedback during the consultation period. This session is crucial for stakeholders navigating the evolving landscape of crypto asset regulation.

Takeaways

• 📜 The webinar discusses ESMA's guidelines on classifying crypto assets as financial instruments, part of the ongoing Maika webinars.
• 🔍 The guidelines are intended to aid market participants and regulators in the EU in understanding and assessing how crypto assets should be categorized under existing financial frameworks.
• 📅 A historical context is provided, noting that there has been a lack of agreement among regulators regarding the classification of crypto assets, leading to the current consultation.
• 🏢 Xreg Consulting, specializing in crypto assets, hosts the webinar, with speakers Ernest Lima and Anna James, focusing on regulatory compliance and EU markets.
• 🇪🇺 Mika, an EU regulation, is highlighted as a comprehensive framework for crypto assets in the EU, aiming to include issuers and intermediaries not covered by other regimes.
• 📈 MiFID, the EU's regulatory framework for investment services, is mentioned, particularly regarding the variation in the interpretation of 'financial instruments' across EU member states.
• 🔑 The importance of understanding the technological wrapper and substantive features of assets is emphasized, rather than just their legal form or structure.
• 💡 The webinar points out various asset categories like transferable securities, derivative contracts, and hybrid tokens, discussing their characteristics and regulatory implications.
• 🌍 The need for global harmonization in crypto asset categorization is acknowledged, emphasizing the borderless nature of these assets.
• 📊 The webinar concludes with a call to action for participants to engage with the ESMA guidelines and stresses the importance of uniform regulatory clarity in the EU.

Q & A

What is the purpose of the ESMA's recent guidelines on crypto assets?

The guidelines aim to assist market participants and regulators in determining whether crypto assets should be considered as financial instruments, providing much-needed guidance in a sector with varying interpretations across the EU.

Why was there a survey conducted six years ago about crypto assets?

The survey was conducted to address the debate on whether crypto assets should be considered financial instruments, as regulators did not agree on their qualification at the time.

What are the primary objectives of the MICA regulation?

MICA aims to establish a comprehensive framework for crypto assets in the EU, capturing issuers and intermediaries (CASPs), and to ensure uniform application of regulations across the EU.

What distinguishes MiFID from MICA in terms of applicability?

MiFID is a directive requiring transposition into national law and is subject to interpretation, while MICA is an EU regulation that is directly applicable across the EU for uniformity.

How do the guidelines address the technological wrapper of crypto assets?

The guidelines clarify that the technological wrapper is not a key factor for an asset's classification. Instead, the focus is on the assets' features, design, and rights.

What does a 'substance over form' approach mean in the context of these guidelines?

It means assessing the true substance and economic impact of an asset beyond formalities, emphasizing commercial reality over legal structure.

Why is the classification of crypto assets as transferable securities significant?

This classification is significant because it determines whether a crypto asset falls under the MiFID regime, influencing the rights and obligations of issuers and holders.

How do the guidelines approach hybrid tokens?

Hybrid tokens are assets with both financial instrument and crypto asset characteristics. The guidelines state that if a token has a financial instrument component, it takes precedence and falls under MiFID rules.

What challenges do regulators face in classifying crypto assets according to the guidelines?

Regulators may lack capacity or expertise for accurate assessment, might err on the side of caution by treating crypto assets as financial instruments, or face challenges due to unclear areas in the guidelines.

How does the EU aim to achieve harmonization in the classification of crypto assets?

The EU aims to achieve harmonization through the guidelines and potential updates to existing financial regulations, ensuring a common understanding and avoiding divergent interpretations across member states.

Outlines

00:00

🚀 Introduction to ESMA's Crypto Asset Guidelines

This paragraph introduces a webinar hosted by XR on ESMA's recent guidelines regarding the classification of crypto assets as financial instruments, highlighting the significance of these guidelines in clarifying uncertainties across the EU. The webinar aims to delve into the specifics of the guidelines, address market participants and regulators' needs for clarity, and discuss the agenda including a brief on XReg, MAIKA, MIFID, and the guidelines themselves. It also mentions housekeeping details about the webinar's duration and the Q&A session.

05:01

🔍 Understanding ESMA's Guidelines and the Need for Clarity

The second paragraph focuses on the rationale behind producing ESMA's guidelines to supplement EU legislation, aiming to offer clarity on crypto asset classification as financial instruments. It highlights the draft stage of these guidelines, the consultation process, and the significant impact of feedback from affected parties. The paragraph emphasizes the guidelines' intent to resolve uncertainties in treating crypto assets across regulators, aiming for a harmonized approach in asset classification and regime application, excluding stable coins.

10:02

📈 Crypto Asset Categories and Criteria for Classification

This paragraph explains how ESMA's guidelines propose to classify crypto assets, emphasizing the lack of a standardized test but providing criteria for classification. It clarifies that technology is not a primary consideration; rather, the focus is on the assets' features, design, and rights. A case-by-case assessment is necessary, looking beyond formalities to understand the true substance and economic reality. It highlights the responsibility of those seeking to list assets for trading to adhere closely to these guidelines, and introduces various asset categories to be discussed further.

15:03

💼 Detailed Examination of Transferable Securities

Paragraph four dives into the specifics of classifying crypto assets as transferable securities, detailing the criteria that must be met for such classification. It addresses the challenges in differentiating between financial rights linked to company profits versus other rights, and the ambiguity surrounding the definition of negotiable capital markets. The discussion emphasizes the nuanced differences between traditional securities and crypto assets, suggesting the complexity in applying existing financial regulations to emerging crypto asset classes.

20:06

🌐 Derivatives and Challenges in Crypto Asset Classification

The fifth paragraph focuses on derivative contracts in the context of crypto assets, outlining the criteria for classification as derivatives and the specific challenges faced, particularly regarding settlement in crypto assets versus traditional means. It underscores the lack of clarity and potential regulatory implications for crypto exchanges offering derivative products, hinting at the necessity for more explicit guidelines to navigate the intersection of crypto assets with established financial instrument frameworks.

25:08

🔑 Hybrid Tokens and Classification Challenges

This paragraph discusses the concept of hybrid tokens, which possess qualities of both financial instruments and crypto assets. It explains that financial instrument components take precedence in classification, underscoring the potential complications arising when the characteristics of a token change over time. The discussion reflects on the practical implications for issuers, regulators, and trading platforms, stressing the importance of accurate classification to ensure compliance with relevant financial regulations.

30:08

🏦 Other Asset Categories and Classification Criteria

The seventh paragraph expands on other financial instrument categories under the guidelines, including money market instruments, collective investment undertaking units, and emission allowances. It explains the criteria for each category, discussing the potential for certain crypto assets to fall within these classifications and the implications thereof. The paragraph also touches on the classification of non-fungible tokens (NFTs) and their current exclusion from the scope of financial instruments regulation.

35:09

📝 Concluding Remarks and Regulatory Considerations

The final paragraph encapsulates the webinar's key points, highlighting the ongoing challenges and uncertainties in classifying crypto assets as financial instruments. It acknowledges the efforts by ESMA to provide clarity through guidelines but notes remaining ambiguities and the potential for regulatory discrepancies across the EU. The paragraph also mentions the upcoming consultation deadline, urging affected parties to contribute feedback, and hints at the need for further harmonization and updates in financial regulations to accommodate the evolving crypto asset landscape.

Keywords

💡ESMA

The European Securities and Markets Authority (ESMA) is a European Union financial regulatory institution that aims to improve the functioning of financial markets in Europe, enhance investor protection, and promote stable and orderly financial markets. In the context of the video, ESMA issued guidelines on the qualification of crypto assets as financial instruments, providing clarity and guidance for market participants and regulators in the European Union on how to assess crypto assets.

💡Crypto assets

Crypto assets refer to digital representations of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology. The video discusses the regulatory uncertainties surrounding crypto assets across the EU and how ESMA's guidelines aim to address the classification of these assets as financial instruments, thereby affecting their treatment under EU financial regulations.

💡Financial instruments

Financial instruments are contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The video emphasizes the importance of classifying crypto assets as financial instruments or otherwise, which determines the applicability of certain regulatory frameworks, including the Markets in Financial Instruments Directive (MiFID) and the proposed Markets in Crypto-Assets Regulation (MiCA).

💡MiCA

Markets in Crypto-Assets (MiCA) is a proposed regulation by the European Union aimed at creating a comprehensive regulatory framework for crypto assets, crypto asset issuers, and crypto asset service providers (CASPs) in the EU. The video highlights that MiCA targets crypto assets not currently covered by existing EU financial services legislation, aiming for uniform regulation across EU member states.

💡MiFID

The Markets in Financial Instruments Directive (MiFID) is an EU legislation that provides a regulatory framework for investment services and activities across the European Economic Area. The video discusses MiFID in the context of classifying crypto assets and its relevance to determining whether certain crypto assets should be treated as financial instruments within the EU financial markets.

💡Regulatory technical standards

Regulatory technical standards (RTS) are technical requirements within the EU financial regulatory framework that specify details of legislation to ensure consistency across the European Union. The video mentions RTS in the context of how ESMA and other European supervisory authorities produce standards and guidelines to supplement EU legislation, including the guidelines on the qualification of crypto assets as financial instruments.

💡Consultation period

The consultation period is a timeframe during which stakeholders, such as industry participants, can provide feedback on proposed regulations or guidelines. In the video, it refers to the period given for market participants and other stakeholders to respond to ESMA's draft guidelines on crypto assets, highlighting the importance of industry input in shaping regulatory approaches.

💡Classification criteria

Classification criteria refer to the set of conditions and attributes considered to determine the category or regulatory status of an asset, such as whether a crypto asset qualifies as a financial instrument. The video explains that the guidelines issued by ESMA provide criteria and conditions to help in classifying crypto assets, emphasizing the need for a case-by-case assessment.

💡Hybrid tokens

Hybrid tokens are crypto assets that exhibit characteristics of both regulated financial instruments and unregulated crypto assets. The video discusses how ESMA's guidelines address the classification of hybrid tokens, noting that if a token has elements of a financial instrument, it should be treated as such, highlighting the complexity in classifying these assets.

💡Regulatory compliance

Regulatory compliance refers to the adherence of an entity or individual to laws, regulations, guidelines, and specifications relevant to its business. The video focuses on the importance of regulatory compliance in the context of crypto assets and financial instruments, outlining how ESMA's guidelines aim to provide clarity for market participants in assessing the regulatory status of crypto assets and ensuring compliance with EU financial regulations.

Highlights

These guidelines aim to help both Market participants and Regulators in their assessments of whether crypto assets should be considered a financial instruments much guidance which the sector has been asking for a number of years now.

The aim of this consultation is to clarify that before we go into um the the slides um I'm going to uh run through a couple of housekeeping matters, the webinar will run for approximately 40 45 minutes we're believeing 10 15 minutes at the end for questions and answers so if you have any questions, please post them in the Q&A button if we have time at the end we may keep the webinar open for for for a short while longer to have a post webinar discussion, or answer any outstanding questions.

Miker is a a very comprehensive framework for crypto Assets in the EU uh capturing issuers of crypto assets and uh crypto asset intermediaries known as casps, these include exchangers custodians, operators of trading platforms for crypto assets, Etc the intention of Miker is to capture all crypto assets that currently fall outside the scope of any other uh EU regime.

Methid is a marketing financial instruments directive it's the EU regulatory framework for Investment Services and activities regulating investment inter intermediaries, Securities markets trading venues all in relation to financial instruments as you all know financial instruments are considered Securities in many jurisdictions.

Guidelines aim to provide Clarity and guidance on the interpretation and implementation of EU regulations and are considered authoritative interpretations by regulators and Market participants alike, although not legally binding they carry significant weight having indirect legal effect and can be persuasive in court.

The guidelines are aiming to plug these holes and Ensure consistency or as much consistency as possible in asset classification.

The guidelines do not provide a standardized test for such classification which is what MAA had requested instead it provides criteria and condition to help determine such classification.

It is important to clarify that the technological rapper is not a key factor for an assets classification, instead what matters and what needs to be considered at all time are the assets features design and rights.

Transferable Securities are the first the first asset class that may be a little bit problematic a transferable Securities are defined under miid as those classes of securities which are negotiable on the capital market with the exception of instruments of payment.

Derivative contracts are are are a type of financial instrument which, um ref makes reference to an underlying asset so the criteria that needs to be met by a crypto asset for it to be brought under under this category is that the crypto asset is a digital representation of a contract um the value of which is determined by an under underlying reference.

Hybrid tokens are assets that have both the qualiity components and property um purposes of a financial instrument and a crypto asset um and the guidelines make it clear that wherever there is the financial instrument uh quality purpose component that that one will take precedence always so hybrid tokens if if they're at any point considered hybrid meaning that it they have both H characteristics they will always be dealt with uh as a financial instrument, and subject to methid rules.

Money market instruments represent short-term uh debt commitments and that are negotiable um and are issued by either governments or firms the criteria that money market instruments um must meet is that they have legal and residual maturity their value is stable with minimum volatility and they align returns with short-term interest rates.

Units in Collective investment undertakings um if a a crypto asset is deemed to be a unit in a collective investment undertaking then one crypto asset would be one unit in the collective investment undertaking, representing the investors's rights to in that Collective investment scheme and the issuer would be the the the investment scheme.

Non-fungible tokens are not uh a financial instrument and don't fall under the scope of niid H but they're not a crypto asset either and are currently outside the scope of of MAA, also uh this doesn't mean that they will not be brought under the scope of Regulation at some points in in the future um which is could be likely but, in order for naset to be um deemed a nonf funable token it has to have unique characteristics and not be interchangeable so one uh non-f funable token should not be able to be traded for another uh similar token because their value ER shouldn't be equivalent.

I urge you to to have a look at it if it can affect you and respond don't underestimate the power of of of having a lot of people responding on particular issues because it will be taken into account especially if it helps achieve the desired outcome of providing regulatory certainty and avoid Divergent interpretations across the EU.

Whilst MAA does provide a lot of regulatory Clarity in the area of crypto assets it doesn't resolve all the issues, especially the ones raised today instead, it has passed the ball to esma uh for esma to provide the clarity and although esma has tried to provide the much needed uh clarification in some of these areas it does not fully achieve it in these guidelines in our view and the clock is ticking as we said MAA starts applying us from June this year for stable coins and, um uh later on at the end of the year for casps.

Transcripts

okay I think we're going to make a start

now welcome everyone to xr's webinar on

the recent guidelines issued by esma on

the qualification of crypto assets as

financial instruments this is part of

our series of maika webinars thank you

everyone for joining us for those of you

who have not come across it we produce

to summary with an initial analysis of

the guidelines uh and we will be posting

a link in the chat in case you want to

have a look at it as we all know this is

an area of a lot of uncertainty with

different interpretations across the EU

um these guidelines aim to help both

Market participants and Regulators in

their assessments of whether crypto

assets should be considered a financial

instruments much guidance which the

sector has been asking for a number of

years now

we know that there has been debate going

on for a while on this topic a survey

was undertaken approximately six years

ago where the conclusion was that

Regulators did not agree as to the

qualification of um whether crypto

assets should be considered financial

instruments the aim of this consultation

is to clarify that before we go into um

the the slides um I'm going to uh run

through a couple of housekeeping matters

the webinar will run for approximately

40 45 minutes we're believeing 10 15

minutes at the end for questions and

answers so if you have any questions

please post them in the Q&A button if we

have time at the end we may keep the

webinar open for for for a short while

longer to have a post webinar discussion

or answer any outstanding

questions in terms of the agenda I'll

give a quick introduction to xreg then a

quick overview of MAA miid and the these

guidelines uh then we'll um have a

couple of slides on the different assets

uh that are covered by these guidelines

at that point I'll pass on to my

colleague Anna who will be talking

through some of the key categories of

assets that are more problematic uh and

uh raise a lot of issues uh then she

will take you through some of the other

less contentious uh categories of assets

and finally we'll have next steps and

conclusion before we move on to the Q&A

so act Consulting we are a global public

policy and Regulatory Affairs

consultancy specializing in crypto

assets with a team of mostly former

regulators and policy makers uh with

practical experience in the development

of Regulatory Compliance strategies I am

Ernest Lima one of the founding partners

of xreg and um I am joined by my

colleague and senior consultant Anna

James who is part of the EU and M

team so a quick recap on on M in short

Mika is a a very comprehensive framework

for crypto Assets in the EU uh capturing

issuers of crypto assets and uh crypto

asset intermediaries known as casps

these include exchangers custodians

operators of trading platforms for

crypto assets

Etc the intention of Miker is to capture

all crypto assets that currently fall

outside the scope of any other uh EU

regime it is an EU regulation so it's

directly applicable so it achieves

uniformity as much as possible across

the EU mikar applies for

issuers as at uh the 30th of June of

this year and for casps as from the 30th

of December this

year a quick overview of methid so

methid is a marketing financial

instruments directive it's the EU

regulatory framework for Investment

Services and activities regulating

investment inter intermediaries

Securities markets trading venues all in

relation to financial instruments as you

all know financial instruments are

considered Securities in many

jurisdictions miid is an is a directive

and not a regulation meaning that the

text is not directly applicable as as

mik will be uh but rather member states

will need to transpose them into

national law it is therefore subject to

interpretation and different uh

approaches taken by jurisdictions Across

the EU one key area of discrepancy is

around the definition of financial

instruments which is the assets that are

covered by

miid so moving on to a quick explanation

of standards and guidelines that are

issued by uh the European supervisory

authorities in in the EU EU so these

standards and guidelines are are

produced to supplement EU

legislation they are normally made in

the form of regulatory technical

standards implementing technical

standards or

guidelines guidelines aim to provide

Clarity and guidance on the

interpretation and implementation of EU

regulations and are considered

authoritative interpretations by

regulators and Market participants alike

although not legally binding they carry

significant weight having indirect legal

effect and can be persuasive in

court the process after they are issued

in draft form normally follows a

consultation period during which a

industry can provide feedback and their

comments in this case esmer is

Consulting on the proposed guidelines

for the qualification of crypto assets

as financial instruments so it's

extremely important that if you're

affected by these that you respond to

the to the

consultation

so this is talking about the

consultation to date we all know that

there has been very little guidance uh

in this area leading to Regulators

treating crypto assets differently with

some considering finan considering some

crypto assets as financial instruments

and others not so a lot of uncertainty

for Market participants and not knowing

which regime would apply one of the main

objectives of these guidelines is to

provide this needed Clarity particularly

on whether it's methid or me that would

apply depending on the asset in

question just a point of clarification

these guidelines apply to all crypto

assets apart from stable coins so it

doesn't apply in relation to asset

reference tokens or e-money tokens once

finalized we hope that these guidelines

will promote convergence across the EU

and will be widely used by market

participants and Regulators to help in

their assessment of the assets in

question and determine which regime

should apply

so why are the guidelines needed in this

slide you can see that there are several

terms which are relevant for both

regimes either MAA or miid and they are

not defined in either that obviously

creates problems the guidelines are

trying to provide more clarity as to

what these terms

mean the holes in the boats that you see

on the slide represent these

definitional gaps so the guidelines are

aiming to plug these holes and Ensure

consistency or as much consistency as

possible in asset

classification another issue is that the

definition of crypto Assets in MAA is

very broad so a lot of assets could fall

within that

definition uh which does uh create an

issue and

uncertainty um since MAA since sorry

going on to miid 2 as I mentioned before

was transposed uh differently by each me

member State what encompasses a

financial instrument

has been interpreted and defined

differently by EU

countries so the guidelines are looking

to to provide that needed Clarity in

this

area

so in terms of classification of crypto

assets the guidelines do not provide a

standardized test for such

classification which is what MAA had

requested instead it provides criteria

and condition

to help determine such classification

Anna is going to be taking you through

some of these assets later on and going

through such

criteria it is important to clarify that

the technological rapper is not a key

factor for an assets classification

instead what matters and what needs to

be considered at all time are the assets

features design and

rights it is also important to emphasize

that a case-by casee assessment is

necessary taking into into account a

substance or form approach so you need

to look beyond the surface of the

formalities to understand the true

substance and economic impact giving

more waiting to the commercial reality

over the legal form or

structure so offerers or persons seeking

to admit admit sorry uh such assets to

trading who are primarily responsible

for the correct classification of the

assets will need to be looking very

closely at these guidelines

however also important to not is that

the classification can be challenged at

any point including

Regulators before I pass on to Anna I

just want to wanted to illustrate in

this Slide the different types of assets

that are relevant and are covered by

these gu guidelines and you can see

which ones apply under methid or under

MAA and which are outside of scope of EU

regulation at the

moment

on the in the next slide you will see a

visual representation of why these

guidelines are

necessary so miid is a starting point

the top level if assets if assets are

considered financial instruments they

obviously fall under the miid regime and

methid applies however because of the

different interpretations and the

different definitions that we've been

talk mentioned earlier on of financial

instruments specifically there is an

inconsistent classification of assets

meaning that the same asset could be

dealt with under miid or if not it falls

onto the next level and would be

captured by

MAA so this means that there there is an

inconsistent approach currently in place

in the

EU and now I hand over to

Anna thank you thank you very much erest

and good afternoon

everyone from the assets that are

covered by the guidelines we have

identified three that are that are the

most significant for for the assessment

and the correct classification given

that the conditions and criteria set out

in the guidelines would quite easily be

met by most or many crypto assets H but

before we look at at the key categories

identified and the rest of of asset

categories I thought it would be

important to look at the definition of

crypto assets under maika given

that the the guidelines build on from

that so crypto assets are defined in

maik as being a digital representation

of value of a value or a right that is

able to be transferred and stored

electronically using a DT or similar

technology as Ernest has already

mentioned uh very very wide um well the

definition is so wide that it could

apply to many many

assets and so the the classification of

these as financial instruments or other

types of assets is so

important H the criteria that would have

to be met in order for an asset to fall

under the the definition of a crypto

asset would

include that the asset is transferable

to other holders that it can be accept

that is accepted by players other than

the issuer or the

offerer that it is fundable so it can be

ER exchanged one token for another

without the value being different and

importantly that these types of assets

do not Grant Financial rights that are

linked to company profits capital or

liquidation

surpluses or voting rights in a

company's decisionmaking process we will

see how these criteria will very likely

be tricky given that it is not always

entirely clear what types of rights are

um linked to company profits and

likewise voting rights in a company's

decisionmaking

process H just to note that crypto

assets may be linked to certain profit

or government

rights and they could also provide

consumption and utility

rights so moving on to the to the

categories that we identified as as as

the most significant or the or the key

categories um transferable Securities

are the first the first asset class that

may be a little bit

problematic a transferable Securities

are defined under miid as those classes

of securities which are negotiable on

the capital market with the exception of

instruments of payment from this uh

definition a lot of the key terms

haven't been defined aren't defined

under mid or other um EU legislation or

or measures uh including for example

classes negotiability Capital markets

and instruments of payment which

highlight the importance of this type of

measure the guidelines

to provide more clarity and ensure that

all member states understand the same

thing for the same terms and and

definitions so in order for a crypto

asset to be deemed to be a transferable

security the criteria that has to be met

cumulatively is for it to be a part of a

class of Securities which would mean

that it is that the the token or the

asset has been issued by the same issuer

that it is interchangeable so the same

type of asset can be exchanged for

another of the same um unit or

or asset and that it provides access to

equal rights uh the rights that a

transferable security would normally

provide access to would include for

example dividend rights or um decision-

making rights in the company's um in

company Rel ated matters or a rights to

um liquidation surpluses or or

Capital the second Criterion for for a

transferable security classification to

be assigned is that the asset is

negotiable on the capital markets this

would mean that the asset can be

transferred or traded on Capital markets

and that it is funable so that it that

it can be exchanged for other of the

same types of

assets and lastly that it is not an

instrument of

payment H here the guidelines note that

the notion of an instrument of payment

which is not a defined term under miid

is not the same as the as that of a

payment instrument under another EU

legislation H which could make it diff

difficult to to to

differentiate

however not to meet the criteria to be a

transferable security this would be

applied in quite consistently throughout

different crypto

assets some of the some of the

challenges that we have identified for

this type of asset includes that the so

the criteria to the criteria that would

make an asset a transferable security

would quite easily be met by by crypto

assets and also there are areas where

distinguishing between one type of um

right and another one may not be as

straightforward so specifically in

relation to the types of rights that may

be granted by certain assets we have for

example it rights that are granted by as

a dividend

um which should be distinguished from

Financial rights that are not related to

a company's profits or liquidation Pro

surpluses if if a crypto asset grants

certain Financial rights that are not

related to company profits then that

would not bring it under the the the

scoper definition of a financial

instrument however the differentiation

there is not entirely clear or

straightforward as I just mentioned

similarly the voting rights that may be

granted by by an asset or a by a

financial instrument or a crypto asset

may also not be as clearly distinguished

so voting rights in the company's

decision-making process um compared to

voting rights on a project what is what

what is the difference between a

company's decision-making process and

decisions on a specific project in some

instances maybe quite clear cut but in

other instances uh the lines may be

quite

blurry moving on to the second Criterion

which is the one on negotiability on

Capital

markets ER most crypto assets will meet

the the the notion of negotiability

given that ownership of these types of

assets can be transferred quite easily

because of of the way they're issued um

on a

DLT and importantly the the concept of

capital markets which is not defined it

is it is unclear whether it is the type

of asset being traded in these types of

venues which defines whether the the

venue is um defined as a as a capital

Market or not meaning that incorrect

classification of assets could mean that

um financial instruments or crypto

assets that are not financial

instruments are in some instances traded

in capital markets so uh Clarity around

that would would be beneficial and

lastly on the on the on the ER concept

of capital raising and how this needs to

be a consideration to determine whether

something is available to be traded on a

capital Market Capital raising in the

traditional World um could be similar to

fundraising through uh crypto asset

issuance so a little bit more clarity

around this area would be would be

beneficial for for Market participants

and for National competent

authorities um I think we can move on to

the next Slide the second asset category

that we we identified as significant are

derivative

um derivative contracts are are are a

type of financial instrument which

um ref makes reference to an underlying

asset so the criteria that needs to be

met by a crypto asset for it to be

brought under under this category is

that the crypto asset is a digital

representation of a contract um the

value of which is determined by an under

underlying reference and that underlying

reference may be an asset a rate an

index an industry an instrument sorry a

commodity including a crypto asset a

basket of crypto assets and um indexes

on crypto assets H so the guidelines do

clarify that crypto derivatives were the

only um aspect of a crypto asset is the

underlying asset remain Financial

instrument

and the other criteria is that the value

when the value of the reference changes

the value of the derivative contract

changes in line with those

changes and finally these types of

assets are are settled um in either cash

or physically and this is the this is

the point where where industry was

expecting a lot more clarity around H

however as we will see now this this

point remains unclear where settlement

is neither in cash or

physically H but crypto derivatives are

settled in crypto assets and just

quickly to note that an indicator which

is not strict criteria for the

classification of assets as derivatives

is whether an agreement with terms

maturity and and other um elements are

are present then this would be a an

indicator that an asset could

be deemed to be a a

derivative the challenges we've ENT with

the challenges and and the point that I

just mentioned around settlement is a

big one and an issue that has been ER

problematic for for a long time now most

uh crypto exchanges make crypto

derivatives available to be traded and

given this uncertainty crypto

derivatives settled in crypto assets

have continued to to not necessarily

fall outside the scope of mythd but

haven't been captured by by myid and the

guidelines don't provide Clarity around

whether they will fall under myid or

whether they will be considered crypto

assets the a crypto asset of course does

not meet the notion of cash and uh or a

physical asset and there is um there is

no appetite for for crypto assets to be

brought under the notion of cash so this

will continue to be um a a tricky aspect

and and something that will require a

lot more clarity and guidance

on if the guidelines if if guidelines in

future which which are expected to to

deal with this point specifically it

deem that crypto asset derivatives

settled in crypto assets are financial

instruments then that will have a huge

impact given that most crypto exchanges

operating in Europe will be at present

in breach of of um EU requirements given

that these types of assets would

necessarily require a a myid license to

be made available or in traded in in

these

platforms so if uh just to to wrap up

that the the challenges on derivatives

if a crypto um exchange offers spot um

exchange and also derivatives as a Casp

will it then need to apply for a myid

license or what will the the Practical

issues U

be moving on to to hybrid tokens and the

third key category identified from from

the asset categories available

and H hybrid tokens are assets that have

both the qualiity components and

property um purposes of a financial

instrument and a crypto asset um and the

guidelines make it clear that wherever

there is the financial instrument uh

quality purpose component that that one

will take precedence always so hybrid

tokens if if

they're at any point considered hybrid

meaning that it they have both H

characteristics they will always be

dealt with uh as a financial instrument

and subject to methid

rules er issuers um should not use

marketing materials or other materials

to misrepresent these assets and er if

in cases where there are characteristics

akin to crypto assets those must not be

PR presented as the predominant ones and

National competent authorities are

reminded that they should not rely on

labels assigned by

issuers some of the challenges with uh

hybrid tokens include um the the primary

uh challenge would be where the

token changes through its life cycle so

not so much for assets that are deemed

as fincial instruments from the outset

so if something is issued as a financial

instrument and then somewhere down the

line it's properties change that

wouldn't be as problematic because it

would already be um complying with with

mhid rules however if a crypto asset is

issued as a crypto asset because it

doesn't meet the the criteria or

conditions to be seem to be a financial

instrument and it changes over time then

this could be quite problematic because

uh if at any point the asset is deemed

to be a financial instrument but it has

already been issued and it's already

been admitted to trading in crypto asset

trading platforms then what are the

practical issues if the asset has to be

delisted what will be the impact on on

holders H and importantly access to

crypto assets and trading and access to

traditional uh market trading isn't the

same so some holders May no longer be

able to access these uh assets that are

now available

under traditional uh trading

venues uh

another important question that hybrid

tokens and their classification their

correct classification percent is

whether crypto asset service providers

that operate Trad platforms will be

willing to take the risk of listing

certain things that may change over time

and whether they will have the the

appetite to build processes for to

monitor the types of assets traded on

their platforms on an ongoing basis to

make sure that at no point these assets

are more um akin to a financial

instrument and therefore should no

longer be offered under those types of

of trading trading V in sorry um

platforms crypto asset trading

platforms moving on to the other asset

categories which are still relevant

however it may not the the criteria and

conditions set out in the guidelines um

leave not as much room for

interpretation as the others and um

meaning that crypto assets that need to

fall under this criteria would would be

would be categorized as such

with with less issues the first are

money market instruments so money market

instruments represent short-term uh debt

commitments and that are

negotiable um and are issued by either

governments or firms the criteria that

money market instruments um must meet is

that they have legal and residual

maturity their value is stable with

minimum volatility and they align

returns with short-term interest rates

examples of money market instruments are

treasury bills certificates of deposit

and Commercial paper um and as mentioned

uh crypto assets that have these uh

characteristics would quite easily be

brought under the money market

instruments it's it's unlikely that many

would would meet this

criteria the second the second asset

type that is covered by the guidelines

and that could also be be one under

which certain crypto assets fall under

are units in Collective investment

undertakings um if a a crypto asset is

deemed to be a unit in a collective

investment undertaking then one crypto

asset would be one unit in the

collective investment undertaking

representing the investors's rights to

in that Collective investment scheme and

the issuer would be the the the

investment

scheme the criteria that a crypto asset

would need to meet in order to be deemed

to be a usit is that the cap that

capital is raised from from token

holders or or issuance and is pulled to

be invested with the objective of

generating a pulled return for the token

holders or the investors the the scheme

would have no other commercial or

Industrial purpose but to invest the

pulled funds and generate a pulled

return and the token holders or

investors would not have a say in the

day-to-day management of the of the

scheme uh a CIS manager would invest the

funds as defined as defined in an

investment policy and there would be no

other uses for the for the

entity um the guidelines clarify that

diversification or liquidity are not

strict criteria for an asset to be

classified as a unit in a collective

investment

schem there is a a there's a point to

raise here and it is that there has been

some um there has been a bit of lack of

clarity or a potential risk raised when

it when it when it comes to staking so a

lot of companies companies offer staking

services with other companies and

there's always been the question of

whether pulling um token

holders' assets to then stake with a

with a separate entity could be

considered or could be bring the assets

under this category but um given the

criteria and conditions set out in the

guidelines we think that it is less

likely that um questions remain so

so the criteria is quite helpful in that

sense the last uh Financial instrument

um asset type covered by the guidelines

are emission

allowances and the guidelines specify

that it's quite unlikely that a crypto

asset would be deemed to be an emission

allowance uh the criteria to be met in

order for a an a cryptoasset to

be considered an emission allowance

would be that it represents a right to

emit a specified volume of greenhouse

gases that it is tradable and complies

with EU emissions trading scheme or

equivalent they are endorsed by the EU

or member states and they symbolize an

approved

unit um again these are not this one is

not um too Troublesome and although we

we see that

anything relating to energy will become

more tradable and there will be more

markets of for for the these types of

assets and also that tokenized emission

allowances may may be the most efficient

way to to trade these types of assets um

as erist has mentioned before the

technology the technological rapper is

not a key consideration and tokenized

emission allowances would remain uh

financial instruments under

myth and now

non-fungible tokens are not uh a

financial instrument and don't fall

under the scope of niid H but they're

not a crypto asset either and are

currently outside the scope of of MAA

also uh this doesn't mean that they will

not be brought under the scope of

Regulation at some points in in the

future um which is could be likely but

in order for naset to be um deemed a

nonf funable token it has to have unique

characteristics and not be

interchangeable so one uh non-f funable

token should not be able to be traded

for another uh similar token because

their value ER shouldn't be equivalent

the value of a non-f funable token must

be linked to the individual

characteristics and utility conferred by

that specific asset and the value should

not be influenced by other non- funable

tokens in particular when we talk about

a collect ction of assets um where nonf

funable tokens are issued as part of a

collection this may be an indication

that the that the assets are not not

funable uh particularly when it's a a

big collection and also importantly the

the guidelines specify that where the

utility or access rights by a

non-fungible tokens are equal regardless

of of one nonf funable token and its

value being different to another if that

utility and access rights are exactly

the same for practical purposes it could

be considered to be

fundable so uh lastly just to to finish

off on on nfts if a if a if a nonf

funable token is fractionalized then

those fractions of the token are deemed

to be fungible and should be dealt with

as crypto assets under

M I will hand back over to to Ernest who

will talk to us about next steps and

just some concluding remarks thank

you thank you very much Anna that's

really interesting um so we've heard

Anna highlight some of the key

challenges and impact that are specific

to to some type of assets particularly

derivatives transferable Securities and

hyb hybrid tokens but we know there are

others

um there's also other challenges for

example challenges for Regulators uh

there are some that will lack capacity

or expertise to make their assessment as

to what is what and um how how they

should be classifying such assets

particularly if some areas of guidance

uh some of the the the less clear areas

that have been uh identified in today's

webinar are not clarified or updated in

the revised

guidance um another issue would be that

Regulators may be inclined to ear on the

side of caution and

um and consider um or treat crypto

assets as financial instruments because

that is what they they are more

comfortable with um and then that that

would be a wrong classification in some

cases um the MAA also uh provides the

ability for competent authorities

Regulators who that are unsure about the

classification of an asset to request an

opinion from the European supervisory

authorities this could be a challenge

for European supervisor authorities who

may be flooded with such requests and

they would only have 15 days to provide

such an opinion to to the regulator that

has requested it um there's obviously

also challenges for issuers of of assets

and uh and crypto asset service

providers when required to make their

own assessment and and when looking at

changes of of a particular assets like

an I was mentioned before if it's a

hybrid token

um how do you classify it uh when when

there are changes to a particular one

and what what when when does it trigger

uh what regime should apply um we all

know that uh lawyers will get involved

and uh lawyers will inevitably be be

creative when interpreting some of these

um particularly some of the more

subjective elements of these guidelines

which will inevitably lead to um a lack

of harmonization in in some of these

areas um there's also challenges around

passporting so if you're a firm that is

authorized under MAA in a particular

jurisdiction because your assets have

been classified as crypto Assets in that

jurisdiction can you passport into a

jurisdiction where that might be

considered a financial instrument that

particular asset that is a a risk that

the host state in that case might not be

comfortable with an inward passporting

of a firm where it is not licensed under

under Ma so there is scope for

regulatory Arbitrage because of this

unless all of this is clarified um

there's also questions of whether firms

should seek a methid authorization

instead of a m authorization we all know

that there are challenges in in miid

there are some areas that don't work um

for crypto assets

hence a creation of the pilot regime

regulation um there are also some

requirements in miid that are very owner

for example around transaction reporting

but if you get a miid license uh you

could notify your home state regulator

and top up your your authorization to

provide crypto Asset Services so that's

an advantage so there's pros and cons uh

but there are risks of of only having a

m license where a crypto asset could

then be considered a um a financial

instrument as Anna has

highlighted um so in terms of next steps

I think everyone agrees that there is a

need for a common understanding in the

EU uh on on this subject um The Hope was

that esma um clarifies some of these

points in in the guidance which which it

does to some extent but as highlighted

today there are some areas of

uncertainty

um the consultation period closes by the

29th of mar of April sorry this year so

I urge you to to have a look at it if it

can affect you and respond don't

underestimate the power of of of having

a lot of people responding on particular

issues because it will be taken into

account especially if it helps achieve

the desired outcome of providing

regulatory certainty and avoid Divergent

interpretations across the EU

will we see some updates to to Mii too

I yet we're yet to see that um we know

that um the definition of financial

instruments we as we've said various on

various occasions D today is has been

defined differently uh by uh different

uh member states there is a need for

consistency on that so we are likely to

see some updates at some point on on

miid um and we are also expecting some

joint joint guidelines by the European

supervisory authorities on the content

and form of legal op and legal opinions

on the qualification of asset reference

tokens as I said before asset reference

tokens are outside scope of these

guidelines um but there will be

additional guidance which we are

expecting later this

year and

to to have some concluding remarks

whilst MAA does provide a lot of

regulatory Clarity in the area of crypto

assets it doesn't resolve all the issues

especially the ones raised today instead

it has passed the ball to esma uh for

esma to provide the clarity and although

esma has tried to provide the much

needed uh clarification in some of these

areas it does not fully achieve it in

these guidelines in our view and the

clock is ticking as we said MAA starts

applying us from June this year for

stable coins and

um uh later on at the end of the year

for casps you need to consider if you're

a Casp and if you are a Casp which

license would you go for do you need a

miid license do you need a m license if

you are an issuer what do you what do

you do do you follow the issuance regime

and the MAA or the traditional

Securities issuance regime following the

prospectus regulation and other existing

Financial Services legislation there are

clearly some fundamental questions which

remain

unanswered so have a look at the

guidelines have your say respond to the

consultation because it's extremely

important and that's the end of the of

the

webinar I think we got a few questions

um if you have any other questions

please pose them on the

Q&A we've got well we've got one

question here from an anonymous ATD he's

asking or she's asking on the global

stage postm we might find that

jurisdictions will handle crypto assets

as financial instruments and others

don't that don't do you see a need for

greater harmonization in the

categorization of crypto assets by

financial

markets definitely right Anna absolutely

I I think that's that's that we've been

talking about it in the context of the

EU uh but it equally applies in in a

global stage crypto assets as everyone

knows have no borders um transactions

are are happening every day across

multiple jurisdictions numerous

transactions very quick transactions so

there is a need for a greater Global

harmonization in this area

definitely I agree there's another

couple of questions we do y let me just

check uh second question

uh we've got another question here is

there a risk that decision making rights

provided by defi governance tokens makes

some of the financial instruments do you

want to take one yes absolutely this is

um this is one of the the interesting

ones and very um relevant because where

where there are certain rights attached

including the decision making making um

rights uh some some of these um

governance tokens issued that may be

cryptos at some point H the rights that

are are granted may change over time and

spe specifically in in dii platforms if

a governance token then um it allows

holders to make votes regarding certain

things uh

including certain decision making that

is not clearly delineated between um

a company specific decision making and

other decision making then this this may

bring them under the category of of

financial instruments and it absolutely

more clarity around this point would be

would be very

welcome thank you Anna um we got another

question from from Patrick um uh given

that the financial instrument

classification is contained in several

pieces of national legislation how will

European author authorities provide

feedback on rules that may apply very

differently across the EU that's a very

good question and which is why uh we

mentioned that there will be a need for

some consequential amendments to some

pieces of legislation for example we

talked about miid 2 and it's a directive

and it allows for uh National

legislation to to interpret things

differently and and Define things

differently which is exactly what's

happened so we are likely to see um more

EU regul more um EU Frameworks for

financial

services converted into EU regulation so

that there is that level of consistency

particularly in some key areas such as

defined terms which have a major impact

on whether or not a particular

instrument Falls within one regime or

another um so I think there was there

has been some debates about some of

these areas of discrepancy for for a

number of years now with MAA coming in

into play very soon there's going to

have to be some changes to make sure

that we we we plug whatever gaps are

there and ensure as much consistency as

possible and thank you elizabeta for

posting the the link to the to the

guidelines um to the consult yeah the

guidelines for consultation that's

right um we've got another question here

um has the EU issued any specific

guidance on the oranization of real

world assets or risk weighted assets I

think maybe maybe the the I I'm not sure

that there has been anything on on risk

uh real world assets uh the I don't

think that guidelines have been

in

published on on real world assets H

there have been a few um papers perhaps

um but nothing nothing specific that we

could point at at this

point another question has come through

from Patrick again so how will nca's in

common law jurisdictions adapt their

Frameworks to comply with the EU civil

law harmonization of Financial Services

legal framework um again another another

very good question and

um coming back to a point that I

mentioned earlier on I think even in

common law jurisdictions um if uh the EU

changes their approach in the way that

they Implement some of these um

Frameworks they will have to implement

um regulation regulations for example

and won't have the ability to to

derogate from certain provisions and

apply or or take a different stance I

think that that will help um there are

there is that conflict between common

law and civil law jurisdictions which is

which might be a sticking point um but I

think the best way to resolve that is to

ensure that things are done by by way of

directly applicable regulations uh which

will avoid um uh that that level of of

discrepancy

anybody any other I think that that's

the last question that we had um but um

if anyone has any any other question

feel free to raise your hand very happy

to give you the floor to ask uh any any

any further

questions likewise um we said we were

going to post the the link to our mini

explainer of the of the um of the draft

guidelines I can't see it yet but if not

we will um we will we will post it

shortly anything else

anyone

no

great there's sorry this's been a

another

post resar tokenize this yeah thank you

very

much yeah there's

a some research on on token I Europe

2025 which has been posted and we've

just posted the link to our our

explainer which you can you can have a

look at thank you very much everyone

once again for attending thank you

Anna thank you

everyone